Being a self-managing landlord is not difficult if you have proper organization, written policies and procedures, and the right business mindset. Check out our top 10 business operating tips we recommend for all DIY landlords.
1. Operate your rental property as a business
Owning rental property and being a self-managing landlord means you must operate professionally and be customer service-oriented. Tenants are your customers, and to generate income, you need to treat them properly. There are processes to follow to ensure you select great tenants, laws to avoid legal action against you, and efforts to properly maintain the rental property to minimize tenant requests for unit repairs.
For those renting out a personal home you recently moved out of, leave your emotions at the door. That property is no longer your home, so getting upset over a junky car in the driveway, cluttered rooms, or dirty appliances will not help your stress level. Instead, control what you legally can and let the rest go. By the way, properly vetting a tenant can help avoid these issues. Check out our FREE 6-page guide: The Residential Landlords Guide to Placing Their Ideal Tenant Every Single Time.
Know all the laws for rental properties
Know your state AND local landlord-tenant laws and ordinances. You can find this information by searching “Landlord-Tenant Laws in ____ (insert your state or county).”
There are national-level laws for Fair Housing as well. Please get to know these as much as possible as they can be easy to violate unknowingly. For instance, you cannot ask a potential tenant where they work. It is discriminatory to assume they have to have a job to qualify to rent your unit. They may be a voucher household or have income from a private source like a trust fund. Another common violation is to ask an applicant if they have children and what their ages are. Although you are just being friendly, this question is discriminatory against familial status. You can only inquire about age if you rent out age-specific residences like a senior living facility. To read about HUD’s Fair Housing Laws, check out their website here.
2. Properly screen a potential tenant
The saying “no tenant is better than a bad tenant” is very accurate. If it takes you two weeks or a month to find the right tenant, then so be it. The frustration of having a tenant who does not pay on time, is destructive to the property, or does not follow the criteria set out in the lease can be stressful and costly to remove. Create standards for your approval process, so you avoid violating Fair Housing laws. If you don’t want smokers to rent the property, make sure your list that in the ad. Do you require a specific FICA score or minimum rent to income ratio? Better list it in the marketing for all to see.
Prescreening Applicants
Prescreen potential tenants before meeting them and accepting an application. Prescreening is a simple short interview to make sure they have read the criteria in the marketing or advertisement. Often, potential tenants will only look at the photos attached to the ad and not read the written criteria required to qualify. They then show up at the unit asking questions CLEARLY indicated in the ad, only to find out they do not qualify. This oversight has wasted your time traveling, opening the property, and getting it ready to show. Time is money! Download our Top 5 Prescreening Questions We ALWAYS Ask to get you started.
The Application
Have a thorough application. It should include these areas to complete:
- Their current address
- Date of birth
- Social security number
- Driver’s license or government ID information
- At least three past rental history locations
- Employer information or source of income
- Three personal references
- An emergency contact
- Roommate information
- Pet information
- Felony conviction information
- A signature authorizing you to pull credit and inquire with employer and references
Again, state and local ordinances may apply to what you can or cannot ask of a potential tenant on the rental application. Check with legal counsel or find a state-specific application from another landlord or a state/local rental housing association.
CHECK EVERYTHING ON THE APPLICATION! First, get a copy of their government ID, the last two pay stubs, and a bank statement for their primary account. Next, call the employer, ALL past landlords, and references. This procedure takes time for everyone to get back to you. We tell applicants it takes a minimum of 48 hours to gather this information and evaluate it. If they are in a hurry, then move on. If any advice sticks with you, remember, you do not want to rush the process because you are anxious to place a tenant.
Learning anything with these top 10 tips for DIY landlords? Keep reading!
3. Create a comprehensive lease
The term “cover your assets” could not be more accurate here. Our lease is 33 pages long! In California, we must include information about specific laws in place (Rent Control, Bed Bugs, and Lead-based paint). Therefore, it is essential to seek legal counsel to create a state-specific lease to ensure compliance. Addendums are your fail-safes; Use them. We use them for everything from no-smoking policies to requiring additional deposits for the use of satellite dishes. Use blank addendums to document specific criteria required, like who is responsible for lawn care, snow removal, or repairs on non-essential appliances.
If you are not aware of what you need to include in a lease, talk to other landlords to see what they suggest, meet with a lawyer, or join a local or state rental housing association. They usually provide leases for free with a membership or you can purchase state specific leases through EZ Landlord Forms. Use code: STACIE15 for 15% any new form or membership!
4. Collect a sizable security deposit
Your state may mandate a maximum amount allowed to collect for a security deposit, so again, know the laws and ordinances around security deposits. In California, we can only obtain a security deposit up to two times the rental rate for an unfurnished unit and three times for a furnished unit. If you do not collect enough for the security deposit, you may have to go after a tenant in small claims court should the damages exceed the amount you hold for them.
Understand normal wear and tear versus damage. For example, holes in the wall for a few photos are wear and tear where thousands of staple holes from a tenant putting up noise insulation foam are damage. A dirt trail on the carpet around the area of the bed is wear and tear. Large stains or holes in the carpet are damage. A small dent in the refrigerator is wear and tear. The handle missing from the dishwasher door is damage.
For more information on security deposits, check out our blog post: Security Deposits, 5 Tips Landlords Should Know.
5. Inspect units every six months
Your lease should state that you have the right to enter the unit for inspections periodically. We inspect every six months, usually in the fall and spring months. You could choose to inspect six months into each lease, but that means multiple trips for inspections for multi-unit properties. We inspect units in our multi-unit properties all on the same day, twice per year.
During the inspection, we check for leaks, mold, and lease violations. We also check to ensure the smoke/carbon dioxide detectors, door locks, and cabinet doors are functioning correctly. As well as change batteries if needed.
Doing this inspection allows us the opportunity to be proactive with maintenance issues. For example, we can resolve the problem before dry rot or mold occurs if we find a water leak. It also gives us a pretty good idea of how the tenant treats the unit and, should the lease not be renewed, what cleaning and damage repairs we can expect.
Ok, we are halfway through our Top 10 operating tips for DIY Landlords! Keep reading to learn more about the behind-the-scenes business practices that are just as important as tips 1-5.
6. Create a solid team to support you
We cannot stress this part of DIY landlording enough. The people you call on for all needs when running a business can make or break your experience. You know your strengths and weaknesses and find others to serve those functions you cannot do yourself.
Find yourself a reputable contractor to call for maintenance issues you cannot remedy yourself. Our contractor can handle almost any maintenance request, and because he is licensed, insured, and bonded, we can trust him in units without us having to be present. He is also willing to be on call when we are traveling. Our contractor has saved us so much stress and anxiety when on vacation!
Other significant team members would be a CPA or tax advisor, real estate lawyer or legal counsel, your bank, pest control company, landscaper, appliance repairman, painter, or a cleaning crew. For our top 5 team members and how we found them, check out our blog Landlording: A Team Sport.
7. Have substantial cash reserves
If 2020-2021 has taught us anything, it should be the importance of cash reserves for the unknown. I know some real estate professionals disagree, but we are of the mindset of “it’s better to be safe than sorry.”
Included in our financial planning for our rental property business is the goal to set aside 10% of earnings each month. We save for vacancies, nonpaying tenants, repairs and maintenance, roof, driveway, appliance replacement, and property upgrades as needed to remain competitive in the market. These funds are your “oh crap, what now” savings account. If we did not have a substantial cash reserve, we would have borrowed money to get through the pandemic. We would have been fine but, the reassurance and confidence we have knowing we are financially secure is an enormous stress reliever.
To learn more about cash reserves, read Cash Reserves for Rental Properties: How Much is Enough.
8. Keep your documents, photos, and records organized
Part of owning a business is keeping your paperwork in order. For rental properties, it is imperative to know where every document is at all times. It does not matter if you prefer paper trail or electronic files.
For each unit, have a file for every tenant. This file should include all correspondence with the tenant and their application, lease, unit photos, and move-out paperwork.
For each property, have files for receipts, warranties, rent roll, maintenance logs, information for machines, and backup keys for units, mailboxes, gates, garages, etc. Also, a copy of the declarations page for your liability insurance.
For the business, you should have operations and policy and procedures manuals. The operation manual will describe all of the essential day-to-day practices for operating your rental property business. This manual is vital should you become incapacitated, so another person can step in and run your business on your behalf.
The policy and procedure manual contains all of the criteria you require to rent one of your units. This manual will state such policies as pet, smoking, financial requirements, what you repair vs. tenant responsibility, etc. It is essential to have these written (and check for legal compliance) if you find yourself in court over a discrimination lawsuit.
To learn more about organizing your landlord documents, check out our blog: Keeping Rental Property Documents Organized.
9. Properly account for your finances
There can be a lot of coming and going of funds when owning a rental property business. You must educate yourself on tax laws and know how to account for your income and expenses. There are a lot of ways to save money on rental income. Having a CPA with knowledge about rental properties to advise you is key.
Stay on top of your bookkeeping. You should know from month to month where you stand financially. If you only work on your financials every three months, you could miss out on potential financial growth opportunities.
Always know the value of your properties and what market rents are. Then, should the opportunity to refinance the property come along, having your finances in order can expedite your loan process, enabling you to use the extra cash to purchase your next rental property.
10. Make sure you are adequately insured
Liability insurance policies depend on the type and size of your rental property. Single-family homes, condominiums, and apartment buildings all have different types of policies and coverage. For example, apartment buildings with more than five units are considered commercial property and have additional coverage that a 4-unit building may not include.
If you own a single-family home and rent only a room or two, you will need to take out rental property insurance to cover the liability, contents, and loss of rent coverage.
Single-family homes and condominiums usually do not include comprehensive liability insurance, just general liability coverage.
Whether you hold your rental properties in an LLC or not, consider getting umbrella insurance for additional liability coverage.
Each insurance company has different levels of coverage, so it is a good idea to have a conversation with your insurance broker to assure yourself the coverage you have is satisfactory.
Lastly, we require our tenants to hold a renter’s insurance policy. There are many reasons why we enforce this policy. Read why in our blog: Why Landlords Should Require Renter’s Insurance.
Love these top 10 operating tips for DIY landlords? Check out our other blogs to guide you on your self-management journey as a landlord:
The Who, What, When, and Why of Residential Vacancy Insurance
Offering Tenants Incentives Upon Lease Renewal
Make It a Family Affair: How Landlords Can Employ Children for Tax Breaks
Marketing Your Rental Property, Get to Know the Neighborhood
Tips for Taking Great Rental Property Photos
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Looking for a community of DIY landlords you can ask questions and bounce ideas off of? Join the Your Landlord Resource Facebook Group, a discussion group for support, tips, and guidance to help create successful landlord-tenant relationships.